Japan could soon dethrone China as the top holder of US government debts.

"This is due to the Chinese Central Bank dipping into its foreign exchange reserves to support the Yuan", economists said. On the other hand, Japan has been content to allow the Yen to weaken.

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Investors are keeping a close watch to the decline of China's holding in US treasuries. They are aware that any sell-off could further ignite an upward trend to US interest rates, which in turn can have a negative effect on the Chinese currency.

On Wednesday, the US Federal Reserve raised interest rates while also signaling a faster pace of rate increases next year. This action sent yields on shorter-dated treasuries to the highest levels in more than half a decade.

US President-elect Donald Trump's attacks on China over its trade and currency policies, as well as his stance that he could end the US's current policy on Taiwan, have also raised fears that Beijing could decide to sell US treasuries as revenge.

However, senior Chinese officials who refused to be named said that this drastic action is not likely to happen.

According to the data provided by the US Treasury Department, China's holdings of US Treasuries fell by $28.1 billion to $1.157 trillion in September, the lowest in four years.

The October figures are expected to show another decline, meaning that Japan could take over the number one spot from China.

The most important figures will be for November and December.  They will show how the economy reacted to Donald Trump's win in the presidential election.

They will also show that investors sold off treasuries in anticipation of rising US economic growth. They are also expected to reflect US government budget deficits as Trump puts in place plans to reduce taxes and fund new infrastructure building.

The November and December figures will be released a few weeks into the new year.

TagsJapan, China-Japan relations, United States, china, US Treasury department, china business